He won the seat of electoral district of Camden for the Liberal Party in 1984. Fahey was elected member for Southern Highlands at the 1988 general election, and re-elected at the 1991 and 1995 state elections. During this period, Fahey was Minister for Industrial Relations from March 1988 and Minister for Further Education, Training and Employment from July 1990 in the Premier Nick Greiner led coalition government.

On the day that he had replaced Greiner, Fahey described it as "the saddest day of his life."[3]

In 1994 NSW Parliament was prorogued on 7 December when the Fahey government was attempting to stop a committee's work.[4]

In March 1995 Fahey's government was narrowly defeated in a state election by the Labor opposition, led by Bob Carr.[1]

Fahey is noted for having thwarted an attack on Charles, Prince of Wales, thereby preventing a potential assassination attempt. On Australia Day 1994, Charles, Prince of Wales was about to commence handing out awards at a ceremony in Sydney's Darling Harbour when a former anthropology student, David Kang, lunged onto the stage towards the Prince, simultaneously firing two shots from a starter's pistol. Fahey, sitting next to the Prince, subsequently assisted by the then Australian of the Year, Ian Kiernan, tackled Kang and wrestled him to the ground, after which Kang was subdued and arrested. Although the attack proved less dangerous than it was first thought to be, Fahey was nonetheless widely praised for his unthinking bravery.

Fahey played a key role in the bidding process for the Sydney 2000 Olympic Games and is also noted for his reaction when Sydney won, jumping up and down enthusiastically.

Fahey resigned from State politics just under a year after his State Government was defeated at the polls and successfully sought endorsement for the Liberal Party, to serve in the federal House of Representatives in the seat of Macarthur. Fahey was elected at the 1996 federal election, and served as Minister for Finance and Administration in the Howard government.

A redistribution in late 2000 radically altered Macarthur, cutting out most of the Southern Highlands and turning it into a notionally Labor seat centered on southwest Sydney. Believing this made Macarthur impossible to hold, Fahey sought to contest neighboring Hume, which had absorbed much of his old Southern Highlands base. Hume was held by first-term MP Alby Schultz, a fellow Liberal who had also served in state parliament alongside Fahey. As a minister, Fahey was entitled to a seat. However, Schultz refused to hand Hume to Fahey, triggering a fight between the two. Prime Minister John Howard ordered an end to the feud.

Soon afterward, Fahey announced in May 2001 that he was retiring, citing family, personal, and health reasons, after having one of his lungs removed in February due to cancer.[5] He retired in October 2001, prior to the November 2001 election.

A Roman Catholic, he is married to a former Anglican, Colleen, and stirred some controversy when he declared his opposition to both abortion and birth control.[citation needed]

John and Colleen Fahey's daughter, Tiffany, was killed in a road accident, at the age of 27, on 26 December 2006. John and Colleen Fahey are now the legal guardians of Tiffany's children, Campbell and Amber.[6] His eldest son is Matthew Fahey and middle daughter Melanie J Fahey.

Fahey was appointed Companion of the Order of Australia in 2002 for service to the Australian and New South Wales Parliaments, particularly through landmark reform of industrial relations, facilitation of high technology and industry growth, and for raising the international profile of Australia as Chairman of the Bid for the Sydney 2000 Olympic Games.[11]

^Parliament of New South Wales Hansard Consideration of Urgent Motion Page 5810 "Archived copy". Archived from the original on 30 March 2011. Retrieved 2010-12-22.CS1 maint: Archived copy as title (link)